Kentucky forfeiture hearing issues multiply

Justice scales

Tomorrow's court hearing to determine the fate of 141 online gambling domain names seized last month by the commonwealth of Kentucky has drawn more attention to the state than its famed horse race. And for good reason.

The implications of the hearing seeking an order requiring these sites to forfeit their domain names to the state go far beyond the future of online gambling, raising significant questions regarding the future of all Internet commerce and how it may be regulated or controlled by the government.

Nearly every major online gambling company is expected to be in attendance at Tuesday's hearing. On behalf of the domain name defendants, attorneys for the Interactive Media Entertainment and Gaming Association (iMEGA) have filed a motion to dismiss the state's action.

The Poker Players Alliance (PPA) has filed an amicus brief opposing the state's seizure of the domain names, and other sites are expected to file papers in opposition as well.

Ahead of tomorrow's hearing, The Bluegrass Institute, an independent research and educational institute focusing on free-market issues, held an emergency summit on Monday at the state capitol in Frankfort to discuss the state's seizure action.

Representatives of various interested parties including the Internet Gaming Council, Interactive Media Entertainment, Internet Commerce Association and Americans for Tax Reform, as well as the PPA and iMEGA, will be on hand to discuss the Kentucky case - the myriad issues it raises and significant threats it poses.

At its core, the issue is whether Kentucky Governor Steve Beshears has the right to seize and then obtain the forfeiture of 141 gambling Web site domain names that are accessible to residents of his state.

On Sept. 18, without notice to any of the affected domain names, the state obtained an order seizing the domain names, and a hearing was set for last Friday on forfeiture of the seized domain names. At the forfeiture hearing, for the first time, representatives of the affected domain names were in court and able to present their argument to the judge.

In a brief filed on behalf of the state, attorney William C. Hurt, Jr., argued that domain names are "illegal gambling devices" under Kentucky Revised Statutes 528.010 and 528.100 and therefore may be forfeited to the state.

Attorneys representing the iMEGA argued in their opposition brief that domain names cannot be seized under that law because they are not devices, noting that the statutes refer to such actual physical objects as slot machines and roulette wheels - mechanical devices which are in no way similar to domain names.

The PPA brief further alleged that Internet gambling is not illegal under Kentucky law because poker is a game of skill, not of chance.

Before the judge even reached any of the substantive issues of the case - whether a domain name is a device or whether Internet gambling is illegal - there were preliminary questions that had to be addressed.

The first was who had standing, that is, the right to appear in court on behalf of the defendant domain names. The second was whether the court had jurisdiction over domain names not registered in the state.

Attorney Robert Foote, representing Kentucky, argued that "no one has standing to appear before the court until a person or corporation is named. A domain name has no right to have a lawyer, only a corporation or person can have a lawyer, and no one here is going to tell you they represent anyone."

There was a swift rebuke to this argument by Joe Brenan, Jr., President of the iMEGA. "Robert Foote may wish that was true; in fact it is not," responded Brennan.

Brenan argued that the issue of iMEGA's "associational standing" in the United States on behalf of the Internet gambling industry has already been established by federal courts (in iMEGA v. Gonzales, et al.). He went on to add, "Because [of] iMEGA's status as a 501(c)6 trade association, they have a right to keep the confidentiality of their membership, even in court."

Other attorneys for the defense agreed. William Johnson, representing seven domain names, and Alison Lundergan Grimes, there on behalf of the domain, each declined to say who owned their client domain names.

The defense attorneys also agreed on another point - they argued before presiding Judge Thomas Wingate that his court did not have jurisdiction over the domain name defendants and that the seizure and forfeiture action should therefore be dismissed.

After hearing these arguments, Judge Wingate gave all interested parties until Oct. 7 to submit detailed legal briefs on their positions, including the issue of legal standing and the meaning of "gambling device."

The judge indicated that the case presented a complex issue of law and that his decision could have far-reaching effects. However, the judge sounded dubious of the defendant domain's position regarding confidentiality, adding: "You are going to have to eventually pony up and say who these people are."

Following the hearing, Edward Leyden, president of iMEGA, voiced optimism. "County Judge Thomas Wingate is a very straightforward, common sense judge, and a thoughtful guy, so we are in good hands."

He explained the precarious position his clients find themselves in. "Registrars are caught in the middle here. On one hand they are concerned that the commonwealth will come after them. On the other hand they are concerned that the contract party will come after them seeking significant damages."

Other interested parties have spoken out against Kentucky's actions. Domain Name Wire, a news source for the domain name industry, issued the following statement:

"It's rather unsettling that the governor of one of the 50 U.S. states can decide to seize domain names, and all he needs to do is find one elected judge to say 'yeah, let's do this'. Scarier still is that the domain owners didn't really have any warning. The order was to seize the domain names first, then talk through the details later. At that point much of the damage has been done."

It has not gone unnoticed that Gov. Beshear is not anti-gambling or even anti-casino. In fact, Governor Beshear based his election campaign last year on a promise to open casinos in Kentucky, which already allows gambling at horse tracks and bingo halls and operates a state-run lottery.

He pushed the state legislature this year to approve a ballot referendum to change the commonwealth's constitution to allow casinos, but the legislature voted against such a move.

This inconsistency has particularly irked the PPA. "Poker players in Kentucky are not taking the actions of Governor Beshear and the court lightly," said John Pappas, executive director of the PPA.

"They viewed the governor as pro-gambling, and our members helped support him in the election just last year. They view this as betrayal. They are outraged - and rightly so - and will speak their mind until this unfounded assault on their freedoms is stopped."

But Pappas was in a more hopeful mood looking forward to tomorrow's hearing. "The Poker Players Alliance is pleased that the court decided to allow for a full review of this case, including arguments from both sides," he said.

"Until this point, the state and its hired gun class-action attorneys have acted in an ex parte fashion - only presenting one side of the argument to the court. The continuance granted today will ensure all the cards are on the table and allow the current owners of the domain names of the 141 websites to retain ownership in the interim.

"The PPA believes that a thorough review of the facts of the case will result in a favorable outcome for the thousands of Kentucky residents who play online poker."

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